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Sunday, September 23, 2012

Returning form the mailbox, a wad of letters in your hand, you shuffle through them and take in the familiar windowed envelopes with some hope and a little fear. And there it is, the one with your bank's logo on the front. "It's just a statement," you say to yourself. But you know better. Do you open it first, to get it over with. Or does it stay on your coffee table, unopened, for days before you finally pluck up the confidence to look.

If you are wondering what to do next. Here's a few ideas that may help.

1. Make a paper airplane.

Credit card statements make great airplanes. The paper is exactly the right thickness for a sturdy plane. Forgotten how? Just fold in half and open out again. Fold down the corners into the middle, twice, then close your plane up and fold the wings down to the side. Pick up your plane and hurl into the nearest waste-paper basket. Don't worry, the bank will send you another one with a nice big late fee next month.

2. Start a shopping list.

Credit card envelopes are exactly the right shape for shopping lists. Use the back, so that you don't run into the window. If you need more room, you can always cut the envelope to open it up and get some more writing room in the middle. As soon as you get some money to pay down your card, you can head to the shops to start crossing those items off your list. Of course, this will mean that you are paying about 20% more than the purchase price for your goods, but hey, if you get it on sale, you may just break even.

3. Roll it into your home loan.

Some big credit card bills look impossible to pay. Tapping away at them little by little can pay them off if you are disciplined and go back to using cash or debit cards for all of your purchases. Discipline can be hard though. Instead, you can roll it into your home loan and be free and clear to run your card up all over again. Paying 20% on your card as you pay it off over a year looks like a lot of money, but is a lot less than paying 6% on the same amount over the next 25 years on your home loan. But a shiny new $0 balance on your credit card makes you feel like you're getting ahead even if you are going backwards.

4. Pay the minimum.

Paying the minimum on a credit card with a $5000 balance puts you in good stead to pay it off in 65 years, with only $20 000 in interest. But don't think about it and it won't bother you. That's what minimum payments are for. They are something to do which ensures you don't have to think about your bill again for another month. Of course rounding up your payment, even to the nearest $10 can put you well on the road to paying off your card and you don't miss that extra few bucks at all. But that's not the point.

5. Set up a BPay

They won't let you do future dated direct deposits. It's a little trick the banks use to try to get you to forget to pay your bill. That way they get to charge a late fee on top of the interest. Sneaky hey? Here's a way you can be sneaky back. Open a separate bank account. Put a weekly direct deposit into your new account of the amount you want to pay off on your card. When the bill comes in, set up a future dated BPay to pay the bill from this account. This way, you get to pay your bill on time and not have to worry about saving up for it. As an added bonus, if the amount you pay clears your card to $0 each month, (and you have a card with an interest free period), you get paid interest on the money in your account instead of paying interest on your credit card. I like having a credit card, the bank pays me interest to use it.

Don't fret about your credit card bill. Turn your worries into positive expectations by having fun with the bill. If this is your monthly paper airplane day, then you may even look forward to it each month.

Saturday, September 22, 2012

I'm reading The Millionaire Next Door by Thomas Stanley and William Danko. It's a book I've been meaning to read for a while now but could never seem to find it in our bookstores. I'm not sure why. I'm guessing it might be due to the fact that it is an American book. Anyhow, I ordered it and it has finally arrived. The reason I wanted to read it was because many other money books quote from it or refer to it regarding concepts. And no wonder. I've barely started the book and already the information is inspiring.

Apparently (in the USA) most millionaires are self made, or what they call "first-generation-wealthy" This means they started from nothing, had no lottery winnings or inheritances but became millionaires on their own. This is great news for all people in western civilisations. Australia and Europe from what I understand have similar opportunities for wealth creation as the Americans. So there's no one to blame and nothing to wait for.

If wealth is achievable for any individual, then it is something that can be taught and learned. Let's get this into schools. If there is no reason why a person can't be wealthy, there is no reason why a person should be poor because of ignorance. Being poor because of choice is a different matter, but let's at least provide our kids with the information so that they can make their choice.

Sunday, September 16, 2012

Most people have a credit card. Some people can put thousands of dollars each month on their credit cards and pay no interest. Other people can be particularly frugal yet end up paying massive amounts of interest. Is it luck, good management, or something else? Perhaps this will clear some things up.

Things you shouldn't do with a credit card.

1. Buy an investment scheme.

I'm speaking from personal experience here. My interest rate is over 20%. Did I honestly think this whiz-bang computer program was going to make me money over and above that rate and pay down my debt as well? At best, the novice investor should be happy with a 10% return. The credit card is not the vehicle for purchasing investments. Use your savings for this.

2. Set up a business

You want to start a business? Great. Businesses are a great way of making money. But credit cards have massive interest attached and are not a good way to finance your endeavour. Instead, you should go to a bank and negotiate a loan with a much lower rate. If they won't lend you the money, that's a good indication that you may need to refine your business plan. Making emotional decisions at this point and using the card anyway could lead to problems.

3. Pay up-front course fees.

Getting an education is always a good idea. The more you know, the more options you have. But have a plan on how you are going to use your new skills to make that money back and more besides. Getting a Student Loan may be better for you than using the card because you can negotiate a better rate. Alternatively, look into payment plans with your education institution. You may find that the weekly rate they offer, whilst higher than the up-front cost, is lower than the option of paying your course fees plus interest on your credit card.

4. Buy a boat

The boat in this case represents any big expense that is just for pleasure. This is a bad habit to get into. If you can't legitimately save up for your hobbies and toys, it's not going to get any easier by putting them on the card. This is just a symptom of a requirement for intant gratification. Buy now-pay later habits lead to a house full of new stuff which quickly becomes old, worn-out stuff and massive credit card debt that you can't pay.

Congratulations.
If you are not one of the truly wealthy, you soon will be. You have realised that you alone are
responsible for your financial situation and have put processes in place to
maintain your lifestyle for years to come.

Mostly B’s

You’re doing okay.
You use money responsibly to maintain a fairly comfortable
lifestyle. You are probably not
much of a risk taker but have realised the importance of putting some money
aside for the future. You may
benefit from setting some goals and working with a financial planner to achieve
them.

Mostly C’s

Constant borrowings mean that you are always paying more for
items than they are worth. You
find it difficult to save because there is nothing left to save after the bills
are paid. You would probably
benefit from keeping a diary of everything you spend for an entire month and
looking at the results critically.
You may be surprised at how much you actually spend on things.

Thursday, September 6, 2012

I'm in the process of writing a book about everything credit cards. This is stuff I've learned over the years but it has taken me hours of research on the internet to get the details just right. It shouldn't have to be that way. How is a person who may be just starting out in their career supposed to figure out which credit card is best for them. There are literally hundreds of different types. Home loans are just as confusing but we'll leave that for another post.

So for all you kids, here's the rundown.

AMEX, DINERS, VISA or MASTERCARD?

These are the big four. They are the facilitating companies which transfer the money from your account to the person you are paying. There really is no difference when it comes to service for you. What you need to consider is not which of these logo's you have on your card but what the terms of the credit card actually entail. For interest though, AMEX and Diners Club are supposed to be better for people who travel a lot and you get these cards through the actual company. Visa and Mastercard are all rounders and you get them through the banks and bank equivalents.

WHAT TO LOOK FOR

Credit cards have essentially 4 features which change to suit your needs (and the banks). These include an annual fee, an interest free period, an interest rate and some kind of rewards program. You'll never get the best of all of these. It'd be nice to have $0 annual fee, 55days interest free, 0% interest and massive rewards points per dollar spent but the banks would not make a profit out of you if that was the case. Instead of looking at each individual credit card to determine which one is the best, decide what you want from these four features and then look for a credit card that fits your description.

Low rate on balance transfers
Do you already have massive credit card debt? You may benefit from a low-interest-on-balance-transfers card. Make sure you have a plan to pay your debt off as soon as possible and don't use your credit card anymore if you want to avoid further problems. Also watch out for the massive interest rate you'll be charged when your low-interest time runs out. Make sure your debt is gone (or moved) by then.

No Annual Fee
Don't use your card much at all? You might want a card with no annual fee so you're not slugged if you don't use your card.

Low Rate
If your card has a low interest rate, chances are there are no interest-free days. If you are in the habit of not paying your card off in full, this is your card. Remember though, every purchase you make on this card is costing you more than the purchase price of the item.

Low Cash Advance Rate
Getting cash out on your credit card is indicative of a budget problem. Don't take the easy way out and pay interest on your cash purchases. Instead, get some budgeting advice and try to use your debit card for cash. This card only encourages bad habits.

Rewards Cards
These are good if you have a specific lifestyle which can take advantage of the rewards. If you fly often, get a card with good frequent flyer points. There are heaps of other rewards you can get so shop around. If you are very disciplined, you can put all of your purchases on this card, get the points, pay the money back before the interest-free period is up and only pay the annual fee. Beware the annual fee doesn't add up to more than the rewards you get, they can be quite high for these sorts of cards.

Specialty Cards
Some lenders have good deals for businesses which include better rewards and extra cards. There may be a minimum spend though so read the fine print. Some lenders will have good deals for students or people with no credit rating. If this is you, check out the offers.

MY PREFERRED CARD
I don't want to pay any more than I absolutely have to for my purchases and I like being able to see where my money has gone each month. I put everything I possibly can on my credit card for these reasons. My card has a low annual fee (I'm not interested in rewards), a fifty-five day interest-free period and a relatively high interest rate for purchases and cash. The interest rate doesn't bother me though because I never get cash out on the card and I pay my bill in full everytime it arrives, so there is no interest charge at all. I do get rewards points as well but I'm not focussed on accumulating them.

Before asking, "what is the best card", decide how you are going to use it. Then match your lifestyle and money decisions to the features you want on your card and go look for a card with those features. The other way can be very confusing and time consuming.